Is Pan EntertainmentLtd (KOSDAQ:068050) A Future Multi-bagger?

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Pan EntertainmentLtd (KOSDAQ:068050) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Pan EntertainmentLtd, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.033 = ₩1.8b ÷ (₩76b - ₩21b) (Based on the trailing twelve months to June 2020).

Therefore, Pan EntertainmentLtd has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 7.6%.

See our latest analysis for Pan EntertainmentLtd

Above you can see how the current ROCE for Pan EntertainmentLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Pan EntertainmentLtd.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 3.3%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 23%. So we're very much inspired by what we're seeing at Pan EntertainmentLtd thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Pan EntertainmentLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 10% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Pan EntertainmentLtd does have some risks, we noticed 4 warning signs (and 1 which is a bit concerning) we think you should know about.

While Pan EntertainmentLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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